Oct 07 - Fitch Ratings has today assigned India's PVN Tex
Industries (PVN Tex) a National Long-term rating of 'B+(ind)'.
The Outlook is Stable. The agency has also assigned ratings to
PVN Tex's instruments, as follows:

- INR50m term loans: 'B+(ind)';

- INR60m cash credit limits: 'B+(ind)'; and

- INR40m non-fund based limits: 'F4(ind)'.

Fitch has taken a consolidated view of both PVN Tex and PVN
Fabrics, reflecting strong strategic linkages between the
entities since they manufacture similar line of products as
well as both the firms are managed and controlled by the same
sponsors. (For more details on PVN Fabrics, please refer to the
rating action commentary, entitled "Fitch Rates India's PVN
Fabrics 'B+(ind)'; Outlook Stable," dated 7 October 2010 and
available on www.fitchratings.com).

PVN Tex's ratings benefit from the longstanding experience
of its promoters in the more stable domestic woven sacks
manufacturing market. The firm caters mainly to sugar, food and
fertilizers industries, with the latter accounting for around
50% of total revenues. Owing to jute decontrol in FY10, there
has been an increase in demand for polypropylene (PP) /
high-density polyethylene (HDPE) woven sacks. This has led to
an increase in the demand of PVN Tex' products, and thus has
enabled the firm to build up its revenues. Fitch notes that the
firm enjoys income tax and sales tax benefits and lower power
costs as its manufacturing facilities are based in Daman.

The ratings are however constrained by the relatively small
size of PVN Tex's operations and the commodity nature of its
products, the latter exposes it to market forces such as
fluctuations in the prices of raw materials (PP and HDPE) and
finished goods. Though PVN Tex has established relationships
with its customers, the large size of its customers and their
bargaining power have resulted in lower margins. The ratings
are also constrained by the INR103m capex that the company
plans to undertake to set up additional manufacturing
facilities. This will be funded through debt of INR50m and the
sponsor's contribution (the Agarwal family), which would affect
its liquidity in case of project execution delays. Fitch
expects the capex is expected to positively benefit the firm
over the long-term. Fitch notes that the firm's liquidity
remained comfortable and was supported by the ad-hoc limits
raised by the firm. The liquidity was further supported by the
equity infusion by the sponsors of INR48.3m in FY10 for the
expansion of its unit.

Fitch will continue to monitor the progress of PVN Tex's
capex plans. Any delays in execution or cost overruns that
materially impact its credit metrics could pressure PVN Tex's
ratings. Negative rating triggers include PVN Tex's EBITDA
margins of below 5% and debt/EBITDA levels of above 6x on a
sustained basis. Furthermore, pressure on working capital
requirements or any greater-than-expected decline of the
company's operating margins due to adverse market conditions
could also act as negative rating triggers. Positive rating
triggers include successful completion of capex and
demonstration of increased revenues and profitability, which
would result in an improved liquidity position.

PVN Tex is a closely held partnership firm, owned and
managed by the Poonamchand Agarwal and family. The Agarwal
family has two other key ventures, namely PVN Fabrics and
Kandui Industries Pvt. Ltd. PVN Tex has been involved in the
manufacturing of woven sack manufacturing for the last 40
years. In FY10, it reported net sales of INR502m (FY09:
INR512m), an EBITDA of INR18.8m (FY09: INR19.1m), debt/EBIDTA
of 6.6x (FY09: 4.6x) and interest cover of 2.5x (FY09: 2.5x).

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